S.J. may have to repay cities $6M in taxes

Friday

Nov 23, 2012 at 12:01 AM

San Joaquin County has improperly withheld an average of $1 million annually from local city property taxes over the past six years, money that is expected to be at least partially reimbursed in the coming months based on a state Supreme Court ruling out of Los Angeles County.

Keith Reid and Zachary K. Johnson

San Joaquin County has improperly withheld an average of $1 million annually from local city property taxes over the past six years, money that is expected to be at least partially reimbursed in the coming months based on a state Supreme Court ruling out of Los Angeles County.

The Supreme Court ruled on Monday that Los Angeles County had been charging cities property tax administration fees on education money that is exempt from such charges under state law. Los Angeles County will have to pay at least $10 million back to its 47 cities. The court will reconvene in the coming months to determine exactly how many back payments counties will be required to pay.

The ripple effect of the court decision, however, is statewide.

"San Joaquin County, like many other counties, uses the exact same methods and mechanisms (of property tax collection) that Los Angeles County does," Lodi City Attorney Steve Schwabauer said, adding that the county and cities have agreed to wait until the Supreme Court case regarding Los Angeles is complete before discussing a settlement.

San Joaquin County Auditor-Controller Adrian Van Houten said local cities could dispute close to $6 million in funds that were withheld locally over the past six years.

County Counsel David Wooten said he was taking a "wait and see" approach before discussing settlement with the cities.

Local cities could claim up to:

» Stockton - $3.2 million

» Tracy - $879,102

» Manteca - $725,464

» Lodi - $721,198

» Ripon - $193,825

» Lathrop - $193,568

» Escalon - $75,389

The dispute centers on fees charged in association with the Educational Revenue Augmentation Fund. It calls for counties to pass through some of the property tax funds to the state for education funding. The state distributed ERAF money in exchange for the lost property-tax revenue.

"Some property taxes switched to ERAF money, and that's where the rub is," Van Houten said. "It's a hot topic, enflaming up and down the state."

The situation becomes further complicated by a money swap that occurred in 2004, a move that officials called the "Sales Tax Triple Flip." With that maneuver, the state swapped out city sales tax and vehicle license fee revenue with property tax income in order to pay for a recovery bond program.

All of the money that cities paid into these creative financing mechanisms were supposed to be exempt, within attached legislation, from the bulk of county administration fees - employee salaries, the cost to make and mail tax invoices etc. Counties continued to levy traditional fees, however. The Supreme Court ruling Monday will put a stop to that.

League of California Cities Executive Director Chris McKenzie said his organization estimated in a friend-of-the-court brief that $40 million has been improperly held by counties statewide. Reimbursement, he said, should be prompt.

"Cities have endured terrible cuts in revenue, and they shouldn't be overcharged," McKenzie said.